Tuesday, 27 September 2011

German Leader Reaffirms Backing for Greece

LONDON — Promising that Athens would live up to its commitments, the Greek prime minister urged Europe to pull together to take the steps needed to head off a potentially disastrous escalation in the sovereign debt crisis.
In a speech to the same group of German business leaders, Chancellor Angela Merkel said Germany would provide all the help it could to stabilize Greece.

“We must stop blaming each other for our different weaknesses and unite together with our different strengths,” Prime Minister George Papandreou of Greece said in his speech. “The euro zone must now take bold steps towards fiscal integration to stabilize the monetary union. Let’s not allow those who are betting against the euro to succeed.”
The speeches — and a meeting between the two leaders set for Tuesday evening — come just two days before German lawmakers are to vote on a bill that would bolster the main European bailout fund, known as the European Financial Stability Facility. Although it is sure to pass — with opposition support if required — some members of Mrs. Merkel’s governing coalition are threatening to oppose it amid popular anger about bailing out Athens. That would be another blow to her credibility at home.
Mrs. Merkel urged lawmakers to back the bill “in a spirit of friendship, a spirit of partnership, not in a spirit of imposing something.”
“If Europe isn’t doing well, then over the medium term Germany won’t do well,” she said.
In Athens, lawmakers were preparing to vote late Tuesday on a property tax that is seen as crucial to the government receiving more financial aid from its partners and averting a default as soon as mid-October, by which time its coffers will run dry without new funds.
Despite vehement popular opposition, it appeared likely that the governing Socialist party’s slim majority of four in the country’s 300-seat Parliament would carry the bill into law.
Meanwhile, the Greek Finance Minister Evangelos Venizelos said that auditors from the European Union and the International Monetary Fund are due to return to Athens this week.
At a news conference in Athens, he reiterated that the government would do “everything necessary” to meet deficit reduction targets, and said that a deeper-than-expected recession had necessitated “increasingly tough measures.”
He confirmed that the I.M.F.’s chief, Christine Lagarde, whom he met in Washington over the weekend, had requested written guarantees from the government regarding the timetable and projected revenue of the new measures. Those are primarily additional wage and pension cuts and the new tax on property.
But he denied speculation that he had discussed a possible Greek default with Mrs. Lagarde and the European Central Bank’s president, Jean-Claude Trichet.
European governments are said to be drawing up fresh plans to make the E.F.S.F. even larger and more potent, with sweeping powers to recapitalize the region’s struggling banks, possibly in combination with large write-downs for holders of Greek bonds.
In Tokyo, the Japanese finance minister, Jun Azumi, suggested that his government might contribute toward a bailout effort for Greece if European leaders were able to hammer out a reasonable plan to calm market fears.
Laurence Boone, an economist at Bank of America Merrill Lynch, said in a research note that in light of meetings held over the weekend at the I.M.F. in Washington, announcements on bank recapitalization are likely in early October, possibly through the upgraded E.F.S.F., as well as an explanation on how the firepower of the E.F.S.F. might be improved. In addition, she added, the European Central Bank might cut interest rates in October.
Mr. Papandreou appeared to back the plans to bolster the E.F.S.F.
“Shoring up our institutions so they can withstand financial shocks is an essential investment in Europe’s long-term security,” he said.
But he called on his partners to stop sniping at the Greeks, describing the “persistent criticisms” as “deeply frustrating.”
“Frustrating not only at the political level, where a superhuman effort is being made to meet stringent targets in a deepening recession,” he said. “But frustrating also for the Greeks who are making these painful sacrifices and difficult changes.”
“We all need to stop the cacophony and work more in harmony,” he added. “Even Germany depends on Europe, its biggest trading partner, for growth and jobs.”
Greece unveiled new measures last week aimed at raising €7 billion, or $9.4 billion, by the end of the year. They included an average reduction of 20 percent to the salaries of state employees, in addition to 15 percent reductions over the past year, and cuts of 4 percent to pensions, on top of the 10 percent already applied.
Those come just three months after the government passed a previous package that included tax increases and wage freezes.
In the streets of Athens on Tuesday, public opposition to more austerity was clear, as thousands of public transport workers walked off the job in the latest in a series of 24-hour strikes.
Tax officials are also striking to protest wage and feared layoffs in the public sector, while the main civil servants’ union has said it will join two general strikes scheduled for Oct. 5 and 19.
In Japan, Mr. Azumi said that he would “not rule out the possibility that Japan would bear some of the burden” in a bailout, provided there was a plan “that involves a steady process and a reasonable amount of funds that would bring markets a sense of security over the Greek bailout.” He did not comment on how big a possible Japanese contribution might be.
Japan is eager to quell investor jitters especially in currency markets, where the euro has slid against the yen, a headache for Japan’s export-led economy. Japanese stock markets have also taken a beating, recently hitting their lowest levels in two and a half years.
Japan, the world’s third-largest economy after the United States and China, has also been eager to lift its standing in global economic affairs, after top Chinese officials also expressed willingness to help European economies tackle their debt.
The Japanese government has already used euro assets in its vast foreign-exchange reserves to buy bonds issued by the European Financial Stability Facility in a bid to bail out Ireland.
Niki Kitsantonis reported from Athens, Hiroko Tabuchi in Tokyo contributed reporting.

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